Dental Practice Finance

## Cost of Capital

When you’re looking to buy or sell your practice, you’ll often find the term “cost of capital” buried in a valuation. Let’s demystify this concept along with other related terms.
Cost of Capital (often abbreviated CoC) is a term often found in dental practice valuations formulas and is often denoted as r. This r is used because CoC plays the more general role of required rate of return in those formulas. Here’s the simplest form of these formulas:
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In this context, required return (and thus CoC) expresses the financial return prospective buyers of a practice expect to receive. The way CoC does this is by discounting the future income expected from a practice to arrive at its valuation. Because CoC discounts future income in this way, yet another similar term, discount rate, is often used to refer to the same concept as CoC.
When a practice has debt holders (for example, a bank when it finances a practice), additional terms will be used because debt holders and practice owners have dif

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